Beijing clean air policy casts another shadow over coal use

Beijing has announced a five-year plan to curb industrial pollution, including tough new measures to limit coal burning, in yet another sign that the world’s largest consumer of coal is making serious efforts to limit its use.

The Beijing Clean Air policy, which will run from 2013-17, aims to tackle the Chinese capital’s well-documented smog problem, which in January exceeded recommended World Health Organization levels by nearly 40 times – a situation China’s premier, Li Keqiang, said gave him a “heavy heart.”

The plan will see coal use for electricity consumption in Beijing slashed by one third from the 2012 level, while limits will also be put on outdoor barbecues in suburban areas and the number of cars will be kept below six million (there were 5.2 million at the end of last year, according to Xinhua), the local government said in a statement on Monday.

Analysts say the draconian measures could reduce the role of coal in Beijing’s energy mix to less than 10 per cent.

And if similar measures are adopted by other regional areas – such as Jingjintang (Beijing, Tianjin, and Tangshan), Pearl River Delta Region, and Yangtze River Delta Region  – it could cut domestic demand in China by 300 million tonnes, or 8 per cent of total consumption, making the thermal coal market in the country, already flooded by excess supply, look even less attractive.

This has implications for the global coal market, of course, as China has historically been the biggest importer of coal, and Australia the biggest exporter. Analysts have predicted that China may cease to import coal within a few years, causing international prices to fall, and weakening the case for new coal mines in Australia.

According to Deutsche Bank, shrinking coal’s share in Beijing’s energy mix to below 10 per cent will be “challenging” – perhaps “too challenging” considering the city’s current consumption level of around 23 million ntp. “It will cause great cost to shift from burning coal to other energy sources,” it said. “The volume to be cut in 2015 should account for 35 per cent of current consumption, or in 2017 for 56.5 per cent of current level,” – a shift that the bank expects will “cause great cost” to industry.

“In our view, such policies and its riddling effect in other cities cast shadows to an already weak coal market,” said a Deutshce report released on Tuesday. “With such policies rolling out, we see that in addition to the existing oversupply situation in China, demand is further stressed due to environmental consideration. We maintain our negative view on thermal coal sector.”

But there is no getting around the problem of China’s air pollution, which HSBC’s director of climate change strategy in Asia, Wai-Shin Chan has described as the perfect catalyst. “(It) is clearly linked to health, and the great thing is that everybody — that’s government officials and company executives alike — breathes the same air.”